By Rohan Dunsdon
Bentleys Queensland – Business Advisors & Accountants
Succession planning processes for outgoing and incoming generations in a family business don’t always follow the same timeline. But that doesn’t mean that the two can’t work in unison. This is particularly important to ensure that the most effective funding approaches – ones that support and protect both parties – are put in place.
In our previous article – The facts you need to start planning your business succession (Growcom Fruit & Vegetable News, September/October 2021, page 26) – we highlighted some key considerations for the outgoing generation in the succession planning process.
In this article, we offer some tips to help the incoming generation with planning for the next steps in your family’s business.
Understand that succession is a journey, not a destination
Many people think succession planning is about giving the farm – including the land and property assets – to the next generation in one fell swoop. This is why it’s often a nail-biting proposition for older generations. They worry about abruptly losing control of their wealth, their business, and (sometimes) their home.
But in reality, starting the journey does not mean ending the journey. Succession planning is more of a transition process. Often, it starts long before there are plans on how the assets will be divvied up – the signing over of land and property is generally the last stage in what can be an extended process.
Succession springs from the points in time when the outgoing generation is ready to start delegating some of the management responsibilities of the business, and the incoming generation takes on greater decision-making authority.
The pace of the process is largely dictated by the “readiness” of the outgoing generation – and needs to be handled sensitively. So, if taking over the reins of your family business is in your future, you can start your succession journey by finding ways in which you can be incrementally more involved in decision making and business planning. This may be a slow and steady approach initially, but in the long run it will enable you to make better informed decisions when the time comes to step up.
Make plans for ‘what’s next’ for the outgoing and off-farm family members
A smooth succession process means long range planning around ‘what’s next’ for the entire family.
For the outgoing generation, funding the ‘what’s next’ commonly relies on off-farm investments. In an ideal world, off-farm investments can include a residence for the outgoing generation to relocate to (or, alternatively, a source of funds for them to purchase property). An even stronger outcome is achieved when this investment is made with enough time for there to be compounding interest benefits and high levels of equity gained.
The last decade of drought and tough farming conditions has made achieving this objective challenging for a lot of businesses, but it still remains one of the best ways to support the transition of the outgoing generation.
An alternative to buying property is share investing. This can create a disciplined, achievable approach to building a source of wealth with passive growth.
Having a plan around the succession outcomes for off-farm family members who have less involvement in the running of the farm is also important. Will they be a part of the business moving forward? If not, how do you achieve ‘fairness’ in the transition of the business? Do you need to?
Again, off-farm investments can be an effective tool for the division of a farming business undergoing transition.
Key to a successful outcome – introduce a consultant or a mediator to guide the process. This should be an unbiased third party. They will be the ‘voice of reason’ in tough conversations.
Keep your family close, and your bank closer
Generally, other than the family who own the business, the biggest investor in your business is your bank. Throughout a business’s life cycle, your bank is often one of your most significant relationships.
Like all investors, your bank needs assurance that their investment is not at risk. In general, horticultural businesses can be higher risk due to the intensive nature of the industry. This risk exposure can be heightened at times when there are foundational changes in a business, such as succession and ownership transition.
Maintaining confidence relies on all family members having a strong relationship with your bank, based on trust and open communication. Start building that relationship early, well in advance of the succession planning process. That way, when you are ready to open discussions about funding the business transition, your financier will have first-hand knowledge of the strengths that the outgoing generation has built, and your ability to run the business in the future. This will ensure they are able to help you to find the best solutions.
Need help with the next steps for your family’s farming business? Rohan Dunsdon and the team at Bentleys have an impressive track record working with businesses across the horticulture sector.
In addition to our business advisory expertise, we offer award-winning finance and lending services that will help you to get to where you want to be.
Contact Rohan today for a no-obligation discussion.
07 3222 9726